March 19, 2008 KATHLEEN AINSWORTH VICE PRESIDENT, RETAIL OPERATIONS ALL VICE PRESIDENTS, AREA OPERATIONS SUBJECT: Audit Report – Local Stamps on Consignment Programs (Report Number MS-AR-08-003)
This report presents the results of our self-initiated review of Local Stamps on Consignment (SoC) Programs (Project Number 07RG008MS000). Our objectives were to determine whether Retail Access Channels officials terminated all local SoC agreements and properly accounted for stamp shipments to consignees. Click here or go to Appendix A for additional information about this audit. Despite instructions from U.S. Postal Service senior management from 2004 through 2007, Retail Access Channels officials did not terminate all local SoC agreements and properly account for stamp shipments to consignees. In addition, Retail Associates1 (RA) incorrectly recorded transactions in the account used by the Postal Service for revenue generated by local SoC programs. These transactions totaled $1.6 million in fiscal year (FY) 2007 and $3.64 million in FY 2006. Our audit identified $817,012 in recoverable revenue loss and $51,693 in unrecoverable revenue loss, which we will report in our Semiannual Report to Congress. Terminating Agreements and Properly Accounting for Stamp Consignments Retail Access Channels officials had not terminated 392 local SoC agreements. Seventy-three of the 392 accounts owe the Postal Service $827,672 for stamp consignments. The accounts for 71 of the 73 consignees have been inactive for at least 3 months, and they owe the Postal Service $817,012 for stamp consignments. The other two consignees obtained stamp consignments from the Xxxxxxxxxx Post Office in the Houston District on November 14 and December 10, 2007; they owe the Postal Service $10,660. We also computed forfeited interest of $51,693 between January 1, 2006, and December 31, 2007, for one past due account that has owed the Postal Service $417,600 since January 2001. The $817,012 that the inactive accounts owe the Postal Service is recoverable revenue loss and the forfeited interest of $51,693 is
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A Retail Associate is any field employee authorized to perform financial transactions at a retail postal unit, such as full and part-time Sales and Service Associates, Window Clerks, or Window Distribution Clerks.
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unrecoverable revenue loss, which we will report in our Semiannual Report to Congress. Headquarters Retail Access Channels officials stated that area and district officials did not always provide the documentation needed to collect the amounts that consignees owe the Postal Service and terminate existing local SoC agreements. Click here or go to Appendix B for our detailed analysis of this issue. We recommend the Vice Presidents, Area Operations, direct the retail and marketing managers for each Postal Service cluster2 to: 1. Provide information about their local Stamps on Consignment programs, including existing agreements and amounts that consignees owe the Postal Service for stamp consignments, to the Manager, Retail Access Channels. We also recommend the Vice President, Retail Operations, direct the Manager, Retail Access Channels, to: 2. Terminate existing local Stamps on Consignment agreements, incorporate them into the national program, and collect the past due amounts that consignees owe the Postal Service for stamp consignments. Stamps on Consignment Revenue Account Was Overstated RAs incorrectly recorded $1.6 million in FY 2007 and $3.64 million in FY 2006 in the account used by the Postal Service to track revenue from the local SoC programs. District and unit officials stated that RAs incorrectly recorded transactions related to Account Identifier Code3 (AIC) XXX, Postage Stock Sales, in AIC XXX, Stamps on Consignment Replenishment Sales. In addition, officials stated they identified a system-wide deficiency that resulted in incorrect reporting. Headquarters Retail Access Channels and Finance officials worked together to deactivate AIC XXX on April 27, 2007, by upgrading the POS ONE system software. This upgrade eliminated the incorrect option, so area and district officials can no longer record transactions in AIC XXX. Because corrective action has already been taken and post offices and postal retail units can no longer record amounts in AIC XXX, we are not making a recommendation in this area. Click here or go to Appendix B for our detailed analysis of this issue.
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The Postal Service has 80 district offices, each led by a district manager who is responsible for retail, delivery, and administrative support for a network of local post offices and their employees. Senior plant managers are responsible for mail processing at one or more mail processing plants that sort the mail for local post offices within each district’s service area. Each district manager and senior plant manager reports to one of nine vice presidents of area operations. Each district office and the processing facilities in its service area constitute a performance cluster. 3 The AIC is a three-digit code that assigns financial transactions to the proper account in the general ledger. Each AIC is assigned to a corresponding general ledger account.
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Management’s Comments In general, management agreed with our findings and recommendations. Area management and Retail Access Channels officials plan to terminate all of the local SoC agreements we identified and settle consignees’ past due amounts by September 30, 2008. However, some area officials disputed their total past due amounts. Western Area officials indicated that three past due consignee accounts were overstated by a total of $132,924, and Eastern Area officials stated that two were overstated by a total of $2,040. In addition, area officials stated they collected some past due accounts during our audit, and those accounts should not be reported as recoverable revenue. Some area officials also disputed the total number of existing agreements, stating that local officials had closed some agreements. Management’s comments, in their entirety, are included in Appendix H. Evaluation of Management’s Comments The U.S. Postal Service Office of Inspector General (OIG) considers management’s comments responsive to the recommendations in the report. For the three past due accounts that Western Area officials indicated are overstated, they provided no documentation indicating that consignees paid for the stamp consignments or returned the stamp stock to the Postal Service. For the two consignees in the Eastern Area, documentation from Headquarters Retail Access Channels supported the past due amounts we reported as recoverable revenue. We consider past due amounts collected during our audit as recoverable revenue loss. We also consider agreements that local officials terminated after December 2004 still open because local officials did not have the authority to award, modify, or terminate local SoC agreements from that time forward. We will report $817,012 in recoverable revenue loss and $51,693 in unrecoverable loss in our Semiannual Report to Congress. The OIG considers all the recommendations significant, and therefore requires OIG concurrence before closure. Consequently, the OIG requests written confirmation when corrective actions are completed. These recommendations should not be closed in the follow-up tracking system until the OIG provides written confirmation the recommendations can be closed.
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We appreciate the cooperation and courtesies provided by your staff during the audit. If you have any questions or need additional information, please contact Robert Mitchell, Director, Sales and Service, or me at (703) 248-2100.
E-Signed by Tammy Whitcomb ERIFY authenticity with ApproveI
Tammy L. Whitcomb Deputy Assistant Inspector General for Revenue and Systems Attachments cc: Patrick R. Donahoe William P. Galligan Lynn Malcolm Janet L. Webster Harry Guey-Lee Katherine S. Banks
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APPENDIX A: ADDITIONAL INFORMATION BACKGROUND The local SoC programs allowed local businesses to sell stamps, which the Postal Service had consigned to them, to customers. Postal Service area and district officials administered these programs through a delegation of authority to award, modify, and terminate stamp consignment agreements granted to managers, Administrative Services, by the Vice President, Purchasing and Materials, in December 1994. Despite instructions from Postal Service’s senior management from 2004 through 2007, Retail Access Channels officials did not terminate all local SoC agreements and properly account for stamp shipments to consignees. Postal Service records indicate local SoC programs generated $2.97 million and $25.3 million revenue in FYs 2007 and 2006, respectively. Amounts Recorded in the Local Stamps on Consignment Revenue Account FY 2007 FY 2006 FY 2005 FY 2004 Area Offices Actual Actual Actual Actual Capital Metro $329,262 $968,783 $372,417 $1,196,141 Eastern 220,451 2,631,900 6,287,706 6,083,464 Great Lakes 67,523 1,057,819 2,573,279 3,332,174 New York Metro 151,755 383,497 603,445 598,203 Northeast 267,915 2,873,801 5,150,803 3,513,544 Pacific 740,869 1,891,915 6,686,808 3,406,718 Southeast 98,248 565,379 3,711,786 5,281,288 Southwest 297,892 586,337 6,919,553 8,989,670 Western 793,597 14,365,385 16,008,640 19,194,925 TOTAL $2,967,512 $25,324,816 $48,314,437 $51,596,127 Source: Headquarters Retail Access Channels Officials OBJECTIVES, SCOPE, AND METHODOLOGY Our objectives were to determine whether Retail Access Channels officials terminated all local SoC agreements and properly accounted for stamp shipments to consignees. Our scope included all local SoC agreements and transactions from FY 2005 through December 2007 (first quarter of FY 2008). We limited our scope to 79 of the 80 Postal Service performance clusters because the Appalachian performance cluster did not respond to our information request. The Appalachian performance cluster recorded $633,415 and $24,805 local SoC revenue in FYs 2006 and 2007, respectively.
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To accomplish our objectives, we: o Reviewed documentation pertaining to consignment shipments, payments, and stamp returns for the period FY 2005 through December 2007, for 79 of the 80 Postal Service performance clusters nationwide. o Interviewed headquarters Retail Access Channels officials to determine whether area and district officials have provided them with the documentation necessary to terminate local SoC agreements and collect the past due amounts that consignees owe the Postal Service. o Selected four of the nine Postal Service area offices with the highest number of active local SoC agreements. We interviewed area retail and marketing officials to determine whether they have provided headquarters Retail Access Channels officials with the documentation necessary to terminate local SoC agreements and collect the past due amounts that consignees owe the Postal Service. o Analyzed data obtained from the Retail Data Mart and discussed the results of our analysis with Postal Service officials. We relied on data from this system to conduct interviews and analyses. We did not directly audit the system, but discussed with Postal Service officials the relevance of the data to our audit work. We conducted this performance audit from May 2007 through March 2008 in accordance with generally accepted government auditing standards and included such tests of internal controls as we considered necessary under the circumstances. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We discussed our observations and conclusions with management officials on January 10 and 22, 2008, and included their comments where appropriate. PRIOR AUDIT COVERAGE Review of the Stamps on Consignment Program (Report Number DR-AR-07-003, dated March 31, 2007). Postal Service officials properly accounted for stamp inventory under consignment with American Banknote Company (ABN). However, ABN deducted some unapproved transactions from their stamp accountability.4 The audit identified $310,608 in questioned costs and $67,337 in unrecoverable revenue. We recommended that management assess the need to adjust ABN’s accountability, request ABN officials to follow key contract provisions, and develop an action plan to
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Accountable materials include postal items such as postage stamps, stamped envelopes and postal cards, blank postal money order forms, or any unsold item awaiting destruction.
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approve and process future adjustments to ABN’s stamp accountability. We also recommended management request ABN officials to inform consignees of the importance of signing for stamp shipments, explore ideas to encourage consignees to make timely payments, and request ABN officials to pay the Postal Service for accounts that are past due. We recommended that management coordinate with area delivery supervisors to ensure delivery scanning, require signature confirmation training for delivery personnel at postal facilities, and train delivery supervisors to monitor proof of delivery errors. Management agreed with our findings, recommendations, and financial outcomes, and planned initiatives to address the issues identified in this report. Fiscal Year 2006 Financial Installation Audit – XXXXXX XXXXXXXX Station, Denver Colorado (Report Number FF-AR-06-186, dated June 6, 2006). The report identified $186,303 in interest lost due to uncollected revenue because unit management did not require a local consignee to make payment until January 2006 for stamps valued at $1.9 million received in June 2002. The station manager and unit supervisor stated they were not aware that the local contract required the consignee to pay for original and replenished stock within 30 days of receiving the stock. In addition, district employees inappropriately renewed a multi-million dollar local contract for a consignee in December 2005. Postal Service management had instructed local officials to terminate local consignments agreements and incorporate them into the national SoC program.
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APPENDIX B: DETAILED ANALYSIS Terminating Agreements and Properly Accounting for Stamp Consignments Retail Access Channels officials had not terminated 392 local SoC agreements. Seventy-three of the 392 accounts owe the Postal Service $827,672 for stamp consignments. The accounts for 71 of the 73 consignees have been inactive for at least 3 months, and they owe the Postal Service $817,012 for stamp consignments. The other two consignees obtained stamp consignments from the Xxxxxxxxxx Post Office in the Houston District on November 14 and December 10, 2007; they owe the Postal Service $10,660. (See Appendices C and D.) We could not determine whether the number of existing local SoC agreements and the amounts consignees owe the Postal Service for stamp consignments, as shown in Appendices C and D, are complete. We could not make this determination because headquarters Supply Management and area and district officials did not maintain a consolidated list of local SoC agreements, along with pertinent information. The Vice President, Purchasing and Materials, delegated authority in December 1994 to Postal Service managers, Administrative Services, to award, modify, and terminate stamp consignment agreements. However, this delegation did not give officials guidance on their responsibilities for local SoC programs. Headquarters Retail Access Channels officials stated that local management maintained individual contracts. Therefore, headquarters had to rely on area and district officials for the documentation needed to collect the amounts that consignees owe the Postal Service and to terminate existing local SoC agreements. Retail Access Channels officials stated that area and district officials did not always provide the necessary documentation. They also stated that terminating local agreements and collecting the amounts owed the Postal Service is laborious and time-consuming. They are working with all area and district offices to pursue the outstanding consignment funds from known local consignees and terminate the existing agreements. In a December 2004 memorandum from the Vice President, Supply Management, to area marketing and retail managers, the Vice President rescinded the delegation of authority previously granted to Postal Service managers, Administrative Services, to award, modify, and terminate local SoC agreements. The delegation of authority was no longer necessary because the Postal Service had established a national SoC program. The Vice President instructed local officials to incorporate their local SoC programs into the national program. In a letter dated June 21, 2005, the Vice President, Supply Management, delegated authority to the Manager, Retail Access Channels, to issue contract termination letters and letters of demand for reimbursement of financial shortages in order to close all
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existing local SoC agreements. The initial delegation of authority was valid through June 25, 2006, but has been extended four times and will expire on March 31, 2008. If officials do not terminate all local SoC agreements, the Postal Service will duplicate efforts and expend resources to administer local SoC programs that should be incorporated into the national SoC program. In addition, the longer consignees maintain custody of stamp consignments, the less likely they will be to pay the Postal Service or return the stamp stock. Officials could lose the manual documentation that supports transactions, or they might not pursue the collection of past due accounts. Further, the longer consignees’ past due amounts remain unpaid, the more interest income the Postal Service forfeits. Since we initiated our audit on May 17, 2007, Postal Service officials have collected $127,535 from 47 past due accounts. (See Appendix E.) However, as we previously stated, 71 existing accounts owing the Postal Service $817,012 for stamp consignments have been inactive for at least 3 months. The $817,012 that these inactive accounts owe to the Postal Service is recoverable revenue loss, and we will report it in our Semiannual Report to Congress. We also computed forfeited interest of $51,693 between January 1, 2006, and December 31, 2007, for one past due account that has owed the Postal Service $417,600 since January 2001. The $51,693 in forfeited interest is unrecoverable revenue loss, and we will report it in our Semiannual Report to Congress. (See Appendix F.) Stamps on Consignment Revenue Account Was Overstated RAs incorrectly recorded $1.6 million in FY 2007 and $3.64 million in FY 2006 in the account used by the Postal Service to track revenue from the local SoC programs. These transactions do not pertain to local SoC programs and should have been recorded in other accounts. Consequently, the local SoC revenue account was overstated by those amounts in those 2 years. (See Appendix G.) District and unit officials stated that RAs incorrectly recorded transactions related to AIC XXX, Postage Stock Sales, in AIC XXX, SoC Replenishment Sales. In addition, officials stated they identified a system-wide deficiency that resulted in incorrect reporting. When RAs entered transactions for AIC XXX, Stamps by Mail, the screen on the POS ONE system gave them two choices. When RAs selected the correct option, the transaction was recorded in AIC XXX. However, when RAs selected the other option, the transaction was incorrectly recorded in AIC XXX. Headquarters Retail Access Channels and Finance officials worked together to deactivate AIC XXX on April 27, 2007, by upgrading the POS ONE system software. This upgrade eliminated the incorrect option, so area and district officials can no longer record transactions in AIC XXX.
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Postal Service policies and procedures require retail personnel to record transactions in the proper accounts.5 Field unit managers are responsible for reviewing supporting documentation for all financial transactions and ensuring that the transactions are properly reported. If officials do not properly record transactions, Postal Service accounting records will reflect inaccurate information.
Handbook F-1, Post Office Accounting Procedures, sets forth the Postal Service’s policies and procedures to ensure consistent accounting practices and proper financial reporting by field units.
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APPENDIX C: EXISTING LOCAL STAMPS ON CONSIGNMENT AGREEMENTS Total Number of Existing Agreements 15 198 20 13 22 10 18 22 74
Area Offices Capital Metro Eastern Great Lakes New York Northeast Pacific Southeast Southwest Western
TOTAL 392 Source: OIG analysis of Postal Service documentation
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APPENDIX D: PAST DUE CONSIGNEE ACCOUNTS Amounts Owed by Inactive Consignees $3,675 80,233 12,737 15,010 33,931 1,665 25,518 423,820 220,423 Amounts Owed by Inactive and Active Consignees $3,675 80,233 12,737 15,010 33,931 1,665 25,518 434,480 220,423 $827,672
Area Offices Capital Metro Eastern Great Lakes New York Northeast Pacific Southeast Southwest Western TOTAL
Total Number of Past Due Accounts 1 21 7 6 7 1 11 6 13
Amounts Owed by Active Consignees
$10,660
73 $817,012 $10,660 Source: OIG analysis of Postal Service documentation
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APPENDIX E: CONSIGNEE ACCOUNTS COLLECTED DURING AUDIT Total Number of Accounts 2 6 1 2 6 5 7 0 18
Area Offices Capital Metro Eastern Great Lakes New York Northeast Pacific Southeast Southwest Western
Total Amount Collected $4,680 12,684 780 4,680 30,900 22,323 9,779 0 41,709
TOTAL 47 $127,535 Source: OIG analysis of Postal Service documentation
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APPENDIX F: CALCULATION OF UNRECOVERABLE REVENUE We identified $51,693 in unrecoverable revenue loss in forfeited interest attributable to one consignee between January 1, 2006, and December 31, 2007. This consignee has owed the Postal Service a total of $417,600 for stamp consignments since January 2001. We made the following assumptions in our calculation. Postal Service’s Cost of Borrowing Dates December 7 through December 31, 2007 April 27 through December 6, 2007 January 1, 2006, through April 26, 2007 Source: Postal Service Headquarters Finance documentation Forfeited interest was calculated using the formula “(1 + Postal Service's Cost of Borrowing (x/365) * consignment amount) - consignment amount,” where “x” was the number of days the payment was past due. The forfeited interest calculation was compounded and applied to the consignment amount between January 1, 2006, and December 31, 2007. We will report $51,693 in unrecoverable revenue loss in our Semiannual Report to Congress. Interest Rate 4.50% 5.00% 5.25%
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APPENDIX G: AMOUNTS INCORRRECTLY RECORDED IN THE STAMPS ON CONSIGNMENT REVENUE ACCOUNT Area Office Capital Metro Eastern Great Lakes New York Metro Northeast Pacific Southeast Southwest Western TOTAL FY 2006 $888,341 70,268 320,017 4,840 980,344 634,257 7,498 466,527 263,941 $3,636,033 FY 2007 $179,873 130,488 40,583 2,771 267,915 523,600 71,919 271,888 110,797 $1,599,834
Source: OIG analysis of Postal Service documentation
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APPENDIX H. MANANGEMENT’S COMMENTS
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Redacted
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